A rate increase by the Federal Reserve is trickling down into banks, with some now offering a higher annual percentage rate (APR) on their certificates of deposit (CDs).
How can you take advantage of the shift to earn more money on your investments? These four smart moves help you earn the best CD rates possible.
1. Choose short-term CDs.
The Federal Reserve rates committee meets every 6-7 weeks to manage short-term interest rates for the economy. They’ve held the rates low intentionally to help the economy recover, but we’re optimistic rates will begin slowly lifting over the next few years, now that we’re in a healthier, more stable economy. This should improve CD rates, so it’s smart to either create a CD ladder to allow for shifts or focus on short-term buys.
Learn more about CD ladders here: How to Use a Certificate of Deposit Ladder to Boost Retirement Income
This allows you to roll your investment into a CD with better interest rates, taking advantage of improvements. If you’re committed to long-term CDs, be sure to look at penalties to exit the investment and compare how it impacts total yield. If you aren’t certain how to do this, your banker or investment advisor is often happy to assist.
2. Shop around for the best rates.
The same bank that handles your personal banking might not offer the best rate on CDs. Automatically purchasing CDs from the same bank or financial investment firm doesn’t automatically ensure you get the best rate available.
Rates are influenced by the Federal Reserve and other governmental measures, length of the CD investment and dollar amount invested… but here’s what most people don’t realize. Rates on certificates are also impacted by the internal goals of a specific bank… even an individual branch of a bank.
Plus, a commercial bank that focuses on business loans may offer rates substantially different than a consumer bank that relies on checking accounts, auto loans and home mortgages for their revenue.
It’s important to shop around to ensure you take advantage of the best rates possible.
3. Review rates BEFORE existing CDs roll over.
It’s easy to let CDs automatically roll over when it’s term ends, which most banks do automatically if you don’t instruct otherwise. In today’s environment, however, it’s not the best way to take advantage of rate changes. It’s useful to know the rates you are currently receiving on any existing CDs, and always review them before they roll over to see if you can improve your return.
A rate that was optimal when you originally invested may not be true at the end of its term. Some find it useful to set reminders on their calendar that gives them enough time to shop rates and make a smart investment decision.
4. Consider add-on CDs.
Some CDs allow the investor to add funds to their CD after the initial investment. For a more volatile market, this can be helpful. When the investor sees an add-on CD doing particularly well, they can invest more money into it to take advantage of the increase.
If you have questions about Certificates of Deposits or the interest rates we currently offer, stop in at a Horizon Community Bank branch today or contact your financial advisor. They can be a great addition to your investment portfolio.